Williams %R is forex oscillator and effective momentum indicator. As other tools from oscillator family, W%R measures overbought and oversold levels on forex. Developed by L. Williams it compares close, to whole price range of instrument in our chosen time period (typically 14 candles).
Anatomy Williams %R forex indicator
Similarly to relative strength index (RSI) or stochastic, it is used to determine position entry and exit point in the market. This is achieved by creating oversold (under -80) and overbought (above - 20) zones.
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Values between -80 and -100 are considered strong buy signal and values between -20 and 0 are considered to be strong sell signal Williams %R excels in this area, which is achieved by removing smoothing component from indicators calculation. Therefore, Williams %R forex indicator can detect price reversal in real time, sometimes even managing to predict them. As with almost all forex indicator, using another tools for trend identification and entry confirmation is recommended.
Williams %R entry signal, can be also further improved by candle or chart formations.
Using Williams %R forex indicator
Finding reversal. Wait for indicator to enter and subsequently exit -20,0 zone for sell signal. Indicator entering and exiting -80, -100 zone is signal for buy. As with others forex oscillator, signal is confirmed only after indicator returns back to -20, -80 central zone. Williams %R is particularly effective in finding price reversals. This feature can be employed to find tops and bottoms within major trend.
By using Williams %R with extremely slow period (100) and plotting – 50 line in indicators window. We can separate uptrend (above -50) and downtrend (below -50). Williams %R promptly reacts to market changes and is therefore able to recognise changes in market trend direction as one of the first forex indicators.